In new bombshell story, "Bloomberg Markets" reveals that Koch Industries sold petrochemical equipment to Iran and paid bribes in six countries

Thanks to our excellent contacts, we got hold of a copy of the still unpublished November issue of “Bloomberg Markets” magazine, because the cover story sounds more than just promising:

We can reveal that this promise has been kept!

In a bold and spectacular move, Bloomberg Markets Magazine wrote a story titled “The secret sins of Koch Industries” which does not only focus on several new revelations, but also provides a comprehensive overview about scandals of Koch Industries which happened during the last decades. The story also explicitly puts the well known political activities of the Koch Brothers in context with their highly questionable behaviour in business.

The story is a fine piece of investigative reporting and spans over 14 pages in the magazine, without the adverts. No less than 15 Bloomberg-journalists in several countries have worked on it. It is fascinating to see that such a major investigative piece about a highly political issue does appear in a business magazine and not in one of the more “traditional” political magazines or newspapers.

This is Pulitzer-Prize territory. This article is destined to make large waves, not just because of the particular revelations, but also because of the highly impressive and almost surprising depth of reporting. It is obvious that no expense was spared for this article. Next to Jane Mayer’s ground breaking piece about the Koch Brothers in the New Yorker, this article by Bloomberg Markets Magazine undoubtedly represents another PR-disaster for the Koch Brothers, and could also have severe consequences.

Bloomberg Markets Magazine reveals in this article for example that:

– Koch Industries used the European offices of their subsidiary Koch-Glitsch to sell millions of dollars of petrochemical equipment to Iran in an apparent violation of the US-Iran trade embargo, as recently as 2007

– Internal documents of Koch Industries prove that the company took elaborate steps to ensure that their US-employees weren’t involved in the sales to Iran

– While is not 100% certain at this point that Koch Industries did in fact violate US law, according to Bloomberg Markets Magazine, internal memos show for example that the details of the sales with Iran were meticulously checked by US lawyers of Koch Industries and coordinated with the lawyers in order to fully ensure that no visible involvement of US-citizens took place

– Koch Industries paid bribes in six countries from 2002 to 2008 to win business in Africa, India and the Middle East, comparable to similar behaviour of German technology giant Siemens (Siemens subsequently had to pay a $ 1.6 billion fine!)

– Koch Industries sacked a compliance officer in France in June 2009 who discovered the illegal bribes at Koch Industries subsidiary Koch-Glitsch

– These revelations were made possible through newly discovered documents from two labour court cases in France

– Bloomberg Markets reveals that former employees of Koch Industries harshly criticize the company for their internal practises and ethics

– The story also covers in great detail over several pages earlier violations of Koch Industries: The company in the past “rigged prices with competitors, lied to regulators and repeatedly run afoul of environmental regulations, resulting in five criminal convictions since 1999 in the U.S. and Canada”

These are just examples of the revelations. There is a lot more in the article – please buy the magazine and read the details yourself.

At the heart of the new revelations is the subsidiary Koch-Glitsch, which according to their website has their main offices in the USA, Italy and South Korea. The Bloomberg article mentions that their German office was closed in 2009. The offices in Germany and Italy were apparently at the heart of the new allegations regarding Iran. The new discoveries could easily develop into a massive scandal with unforeseeable consequences for Koch Industries.

Koch-Glitsch was formed in 1997 with the acquisition of selected assets of Glitsch, Inc. by Koch Engineering Company, Inc. It is the best of both Koch Engineering and Glitsch, Inc. with a continuing commitment to providing value-added products to our customers.

Koch-Glitsch is a Koch Chemical Technology Group, LLC company that serves the refining, chemical, and petrochemical industries. Koch-Glitsch offers one-stop shopping for many customers because of the related product lines of our affiliated companies. Diagnostic scans, combustion burners, modular mass transfer skids, and heat transfer products are just a few of the many products available from other companies within Koch Chemical Technology Group, LLC.

According to Bloomberg, the products of Koch Industries which were sold to Iran helped to build the largest methanol plant in the world. The German engineer George Bentu, who worked for Koch-Glitsch from 2001 to 2007 is quoted saying that the company used “every single chance to do business with Iran”, and that his concerns were brushed aside when he first discovered documents about the deals with Iran: “Bentu says his boss told him not to worry, that the company’s U.S. lawyers made sure the deals with Iran were legal”, according to the magazine.

It will probably surprise nobody that Koch Industries sees nothing wrong with the practices of Koch-Glitsch. A spokesperson of Koch Industries is quoted in the article with saying that “Koch-Glitsch had protocols in place that were consistent with applicable U.S. laws allowing such sales at the foreign subsidiary level.”

However, I have great doubts that such arguments will be an effective defence. The documents prove, according to Bloomberg, that the sales with Iran were coordinated with the US lawyers, basically in order to ensure that the documentation is “clean.” In my opinion, it appears that Koch Industries had an elaborate scheme in place to circumvent the embargo, and US citizens were involved in “supervising” the scheme. I also question whether Koch-Glitsch is a “foreign subsidiary”, as the company also has three offices in the USA.

As it is mentioned in the article, German technology giant Siemens had to pay a fine of $ 1.6 billion for paying bribes in four countries. It now has been discovered through the new documents that Koch Industries paid bribes in six countries in order to win business, over the course of several years. It is also revealed in the story that Koch Industries was aware of the danger, having seen what happened to Siemens.

Here’s a rule of thumb about public relations: When P.R. pros begin furiously spinning a story before it has even come out, there’s a pretty good chance the story is going to be damaging to the reputation of said P.R. pros’ bosses.

And that’s exactly what we’re seeing right now, as an anonymous person or persons in the orbit of the billionaire conservative donors Charles and David Koch try to discredit a forthcoming story in Bloomberg Markets magazine.

Based on the prebuttal items appearing this week in the Washington Examiner, the Daily Caller, and U.S. News and World Report, the Bloomberg story focuses on alleged malfeasance and/or fraud and/or bad behavior by the conglomerate Koch Industries.

One of those episodes apparently involves bribery by a Koch subsidiary in France, according to the piece by Washington Examiner editorial page editor Mark Tapscott. He reports that “Bloomberg reporters have been trolling among former Koch employees overseas in search of disaffected voices willing to talk,” but Tapscott suspects the story may be animated by bias against the Tea Party. And he notes that, “Koch USA officials say they were as surprised and angered as anybody else when they were first apprised of the bribery allegations, and moved as quickly as possible to get to the bottom of the situation and fix it.”

All three of the prebuttal stories cite an unnamed source who was interviewed for the Bloomberg story; it’s not clear if that same source spoke with all three publications. The Examiner describes the source as a former government official.

Well, fact is that story in Bloomberg Markets Magazine is based on solid reporting, with documented evidence and witnesses on the record. This will be a tough ride for the Koch Brothers. There is nothing to “discredit.” The article is an effort of almost monumental proportions, carefully researched by no less than 15 journalists all over the globe, and very courageous at the same time. I believe that since Enron the business press hasn’t delivered a similar slam dunk.

The summary by “Bloomberg Markets” is damning:

For six decades around the world, Koch Industries blazed a path to riches – in part, by making illicit payments to win contracts, trading with a terrorist state, fixing prices, neglecting safety and ignoring environmental regulations. At the same time, Charles and David Koch have promoted a form of government that interferes less with company actions.

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The political activities of the Koch Brothers are also mentioned in the article, but this is not the main emphasis of the story by Bloomberg. However, the Koch Brothers won’t like it one bit how Bloomberg “connects” their huge financial support for example of the Tea Party movement with their questionable business dealings.

Recently, I saw the full version of the excellent documentary “Astroturfwars – How corporate America fakes a grassroots revolution” by Australian filmmaker Taki Oldham. Despite the fact that I already knew quite a lot about the Tea Party movement and the corporate fake grassroots groups in general, I was still taken aback by the shocking revelations in this documentary, and asked myself how it is possible that in the USA such a solid piece of reporting has not been shown on mainstream TV. The documentary has been distributed over the internet, but I would be surprised if more than a few thousand people in total have watched it so far.

Taki Oldham examines in detail the phenomenon of the “front groups” like “Americans for Prosperity”, and discovers that these front groups are extensively used in the fight against government healthcare, climate change legislation and in supporting the Tea Party movement, and that Koch Industries are at the heart of many of these front groups.

During my research, I was surprised to discover that the concept of a front-group was first developed by the German propaganda genius and communist Willi Münzenberg in the 1920s, which prompted me to buy a biography of Willi Münzenberg, published by Harper Collins as well as a book in German language which he wrote himself, called “Propaganda as a weapon”, in which he sharply analyses the methods of Nazi-propaganda. The methods of the Nazis were very different from Münzenberg’s tactics, as he preferred covert operations in which the person of desire doesn’t even know that he or she is being subjected to propaganda. Therefore Münzenberg developed with great skill the concept of the “front groups”, a concept that proved to be so effective that it later was adapted for example by the tobacco industry, and then by the Koch Brothers. It is always nice to learn new and additional facts while originally researching a different topic. Münzenberg was most likely killed by Stalin’s henchmen in 1940, a few years after Münzenberg, who in earlier years was a very good personal friend of Lenin, turned into an anti-Stalinist.

Münzenberg emphasised the need for a front group to completely hide the real “owners.” This is a lesson which the Koch Brothers haven’t learned, because despite all their attempts to act as secretly as possible, they are still far too transparent – which is fortunate.

They also took elaborate steps to ensure that the content of their “infamous” meetings with business leaders and journalists are kept secret. However, they failed miserably. The most recent revelations were several sensational recordings from inside the secret “Summer Seminar” in June 2011, which were published by Mother Jones (here and here) and the Brad Blog (here and here).

Today, I created a clip with some of the most important remarks by Charles Koch, in which he says that “we have Saddam Hussein”, and that the next 18 months will be the “mother of all wars, for the life or death of this country.”

It just so happens that Melissa Cohlmia is the Koch Industries spokesperson who is quoted in the Bloomberg article several times, always with the same “Everything is fine – nothing to see here” statements. So her “marketing approach to crisis communication” is already quite obvious. Deny, refute, deflect. However, I have to say that her statements in the article are far from convincing, given the overwhelming documentation which is provided by “Bloomberg Markets” magazine.

I wonder if she has anything interesting to say, or if she will answer questions? Is somebody living close and has time to attend the speech?

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UPDATE 2:

I just looked into our statcounter, and I discovered that we have new visitors.

Charles & David, I am truly sorry that we ruined your Sunday. We all cherish our weekends, but unfortunately I couldn’t wait any longer to publish the story.

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UPDATE 3:

Some more details from the article in Bloomberg Markets magazine:

– The compliance manager who was later fired by Koch Industries was a woman called Ludmilla Egorova-Farines. She was hired in April 2008 by Koch Chemical Technology Group, a subsidiary run by David Koch, for the newly created position of compliance and ethics manager. She was asked to investigate the illicit payments by Koch-Glitsch. She then discovered that bribes were paid from 2002 to 2008 by Koch-Glitsch in Algeria, Egypt, India, Morocco, Nigeria and Saudi-Arabia.

– Leon Mausen, Business Director of Koch-Glitsch in France from 1998 to 2008 was blamed by Koch Industries for the payments. He was also sacked and sued Koch Industries in June 2009, but two labour law courts in France ruled in his favour, saying that a man called Christoph Ender, who was the President of Koch-Glitsch for Europe and Asia, as well as the controllers and auditors, “allowed such business practices to continue without doing due diligence in their reviews concerning the payment of commissions and the final beneficiaries of said commissions.” Bloomberg Markets note that Christoph Ender currently works as an executive for Koch Industries in Wichita.

– Bloomberg Markets magazine quotes Professor Sara Sun Beale from Duke Law School in Durham, NC, who said that these illicit payments by Koch-Glitsch may violate the Foreign Corrupt Practices Act from 1977

– Regarding the deals with Iran, Bloomberg Markets magazine notes that Koch-Glitsch received a purchase order to supply petrochemical equipment for Iran just ONE DAY after President George W. Bush said in an address to Congress on January 28, 2003 that Iran “represses its people, pursues weapons of mass destruction and supports terror.” Another contract was secured for $ 1.2 million by Koch-Glitsch on May 31, 2004, to help extend the methanol plant in Iran.

Lots of spin by Koch Industries. This is one area in which they are really good at: Spin and propaganda – and it’s nice have AFP as your own astroturf army spamming the internet for you.

Koch Industries now published a long statement as a rebuttal to the Bloomberg article, also regarding what they call the “France issues”, and they try to dismiss the notion that there was any wrongdoing on their part, basically saying that one employee went “rogue” and was solely responsible for the bribes, without the knowledge of others in the company.

In its Dec. 8, 2008, termination letter to Mausen, Koch blamed him for the illegal payments. In July 2009, Mausen sued Koch for severance and performance pay in the Arles Labor Court in southern France.

On Sept. 27, 2010, the court said Mausen hadn’t acted on his own.“It was not Mr. Mausen alone who was giving authorizations,” the court wrote.

Company policy required approval from other Koch-Glitsch managers, including Christoph Ender, the president of Koch- Glitsch for Europe and Asia, the court said.

“Ender, manager of Koch-Glitsch France, as well as the controllers and auditors who were assisting him, allowed such business practices developed with Mr. Mausen to continue without doing due diligence in their reviews concerning the payment of commissions and the final beneficiaries of said commissions,” the labor court wrote.

An appeals court in Aix-en-Provence issued a second ruling on June 14, 2011, saying the company couldn’t justify terminating Mausen for the payment scheme because his managers had been aware of the practices for more than 60 days before he was fired. The court ordered Koch-Glitsch to pay Mausen 150,808 euros ($206,170).

Mausen declined to comment, beyond saying he disputed Koch’s arguments in court. Ender, who is now a Koch-Glitsch executive in Wichita, didn’t respond to requests for comment.

Koch Industries wasn’t able to refute any of these facts.

The defence by Koch Industries regarding the deals with Iran is also very weak. Bloomberg describes in detail that Koch-Glitsch had lawyers in the USA working on the deals with Iran to ensure that everything was “formally” ok.

Furthermore, was Koch-Glitsch really a “foreign” subsidiary? The company has one of the main offices in the USA, and two other offices in the USA as well.

In order to comply with terrorist sanctions law, neither Halliburton (the U.S. parent company) nor any of its U.S. subsidiaries here or overseas can engage in any decision making with regard to, or become involved in, business transactions between the foreign subsidiary –Halliburton Products and Services – and Iran. The foreign subsidiary must be truly independent in order to legally take advantage of the loophole.

Was Koch-Glitsch “truly independent?” That’s not my impression at all!

No decision-making from the parent company? But Koch’s own US lawyers were checking the deals!

I would be very surprised if the Koch Brothers would be able to make these allegations “go away” just with a simple statement.

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Many thanks to our contributor Nomad for finding the PDF with the results of the Grand Jury investigation into Halliburton.

The groups — Americans for Prosperity, FreedomWorks, Club for Growth, Leadership Institute and Tea Party Express – raised $79 million last year. That’s a 61 percent increase from their haul in 2009, when the tea party first started gaining traction, and an 88 percent increase over their tally in 2008, according to a POLITICO review of campaign reports and newly released tax filings.

And the two biggest groups — Americans for Prosperity and FreedomWorks — tell POLITICO they’re planning to raise and spend a whopping $156 million combined this year and next, laying the groundwork for what could be a massive tea party organizing push against Democrats and the occasional moderate Republican in 2012.

Expect in 2012 many more vicious propaganda clips against President Obama by Americans for Prosperity like this one, which they created specifically for the 2010 election:

Last update for this post: Today was a proud day for American investigative journalism. It was not the day of the “pundits” and “spinmeisters”, but of good old solid investigative reporting.

Bloomberg fearlessly took on Koch Industries, and after the publication of their story, they now broadcast an equally hard-hitting and fearless TV-report. It’s the facts which count. There are far too many journalists who are suspiciously eager to defend the Koch Brothers, like Jennifer Rubin at the Washington Post, who today wrote that the Koch Brothers are being “singled out.”

Well, dear Mrs. Rubin, unfortunately it’s the Koch Brothers who singled out the American people!

Here is Bloomberg’s TV-report:

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UPDATE 8:

I changed my mind – here is another interesting update: ABC News tries to interview David Koch, but he refuses to say anything and flees into his car.